Franchising: The Purpose of Awarding a Territory

When Franchising Your Business one of the key elements in the franchise development process is determing if you will be awarding a protected territory to franchisees. So, I thought I would take just a few minutes to share a few things regarding the territory that may help in your understanding of franchise territories . Awarding a territory is a huge value added aspect for the Franchisee and serves two purposes:

1. Ensures franchisee that you will not award another franchise within this defined area and/or open a company owned location within this defined area

2. Gives the franchisee peace of mind that another one of your concepts (whether franchise or company owned unit) will not directly advertise for clients within this defined area

This defined area should be large enough to incorporate the “good” along with the “bad” areas and is defined as one large cluster (whether by demographics, radius or zip codes). From the standpoint of servicing customers and/or clients, this does not mean that a franchisee cannot service a customer and/or client that outside this defined area. This is especially important for service oriented business models. Franchisees can go where ever their sphere of influence takes them, however they just cannot directly market outside their defined area. Franchisees can service customers and/or clients outside their defined area from whom they receive an unsolicited requests. The defined area awarded (Territory) should be large enough to provide the Franchisee with sufficient business potential.

It is specifed in the Franchise Disclosure Documents that it is up to the franchise applicant to submit to you the location for their business for your approval. When discussing that location if it is determined that their location and surrounding area is not sufficient due to neighborhood, demographics, population, etc then you can simply disapprove of that location and the Franchisee must find another. The location of the franchise business is an important factor directly linking to the Territory awarded.

For more information contact The Franchise Maker

The Major Difference Between Franchising and Licensing

I thought I would take a minute and answer a very common question often asked "What is the difference between franchising and licensing".

Licensing works best when a company has a product to distribute. When a business is under a license agreement, money is made as the Licensee continuously purchases product from the Licensor instead of receiving royalties. The license agreement model works best when there are products that tie the Licensee to the Licensor and there is no concern or standards set for how the Licensee's business operates. For illustration, best examples I can think of are laundry mats, vending machine or pack/mail/shipping businesses.

Franchising is a regulated industry set out to protect the buyer (entrepreneur) and is considered a “safe harbor” when it comes to getting into business. In fact many states have certain requirements (far more stringent that federal requirements) when approving a franchisor to sell franchises in their state (more on that topic later). A franchise is proven business model whereas the entrepreneur is in business for themselves, but not by themselves because the Franchisor is there to help, guide and assist them to grow (if executed properly). Licensing does not have such safeguards and is akin to a drinking water through a fire hose then left alone.

Bottom line is that if you intend to:

· Require that the business is operated under your trade name (using your name and marks);
· Collect a fee (such as a one-time fee or ongoing royalty fee);
· Provide marketing and operational support;
· Require that each business operate a certain way, following your systems and procedures; and
· Collect monthly reports indicating financial performance

Then your business model is a franchise.